WHAT ARE SME LOANS AND WHY ARE THEY IMPORTANT?
An entrepreneur running an organization could realize the need for immediate funding to cater to the needs of business expansion, hire expertise, purchase equipment or to procure new infrastructure. SME loans allow entrepreneurs to raise additional funds without dipping into their running costs to tackle unplanned development business opportunities or face unexpected expenses. With the rise of adoption of technology in the banking sector, applicants have a plethora of SME loans to choose from. Before, we talk about the current SME loans available for new business, here’s a quick brief on what small business enterprises are.
WHAT ARE SME’S
The Small and Medium enterprises industry in India currently comprises of 1157 groups and 6000 other minor clusters within. This segment is one of the fastest growing revenue generating wings of India’s economy and is currently contributing 45% of India’s manufacturing and 40% of India’s export.
The Reserve Bank of India (RBI) defines “SMEs as small-scale industrial unit, an undertaking in which investment in plant and machinery does not exceed Rs.1 crore, except in respect of certain specified items under hosiery, hand tools, drugs and pharmaceuticals, stationery items and sports goods, where this investment limit has been enhanced to Rs. 5 crore”
Small and Medium scale enterprises (SME) are generally those institutions with investments in fixed assets and pertain a relatively lesser operational cost. SMEs are profound in agriculture, manufacturing, pottery, leather, carpentry, and units.
FEATURES OF SME LOANS:
SME loans are one of the most sought-after loans by entrepreneurs for, they offer quick disbursal, flexible repayment options, and competitive pricing depending on credit scores. This makes it easier for applications to choose an option that is in the best interests of the company’s needs. The different types of sme loans for new businesses include
PM MUDRA YOJANA:
The Pradhan Mantri Mudra Yojana is a government initiative that looks to provide funding to micro, small, and medium scale enterprises whose lending requirements are under INR Ten Lakhs. This scheme is further classified into Shishu, Kishore, and Tarun according to the growth cycle of an enterprise and varies the capital of lending accordingly. The PM Mudra Yojana is an SME loan that takes up relatively longer processing timelines but offers the most competitive rate of interest and prolonged repayment tenures.
The PM Mudra Yojana is best suited for those businesses who do not have an immediate need for lending and are open to waiting for long periods for their applications to be processed.
TERM LOANS:
Term loan is another form of SME loans for new businesses that feature a fixed capital for lending, a fixed repayment cycle (mostly monthly), and a fixed equated monthly installment throughout the tenure of the loan. The tenure for these sme loans range from 1 year to 25 years depending on the nature of the loan, the sum involved, and the credit history of the applicant and the applying company. Term loans are offered by public and private banks, unions, and other private lending institutions. More than often, term loans are applied for with a private, industrial, or a commercial property as collateral to the lending institution.
Features of Term Loan:
- Term loans come with a repayment tenure of 1-3 years
- Loan amount ranges from 1 Lakh to 1 Crore rupees.
SMEs that meet the following criteria are eligible for ‘Term Finance’ from FlexiLoans
- Your business must have a minimum operational history of 6 months.
- Annual business turnover of at least 12 lakh INR
- Your Net Profit of at least 3 lakh INR
- Click here to know if your business is eligible for Term Loans
LINE OF CREDIT:
A line of credit is another form of sme loan for new businesses that is tailored according to the requirements of the applicant. In this form of lending, the applicant is granted the capital they’ve asked for, but are only charged upon usage. The applicant can choose to withdraw a portion of the fund and interest is levied only on the amount withdrawn. Upon repayment, the sum becomes open for lending again.
Line of credit is generally taken from private and public banks, private lending merchants, and a Peer to Peer basis.
Line of credit operates on secured and unsecured business models and a credit card is a classic example of Line of credit in an unsecured model.
The eligibility criteria for applying for a sme loan of this nature depends on the financial history of the business and of the applicant. Revolving credits and revocable line of credit are other sme loans new business opt for.
Features of Line of Credit:
- The lending capital in a line of credit goes from 5 lakh upto 1 Crore.
- The repayment tenure is flexible upto 12 months.
- The interest rate is considerably smaller as the applicant is only charged for the capital withdrawn.
INVOICE FINANCING:
Invoice financing is a way organisation can raise loans from lenders against invoices that are due from customers of vendors. A part of the invoice is taken by the lender as a fee for processing a loan. Most companies rely on credit, the business first and pay later model, and in this business model, the payments are not always steady and depend on the payment cycle of the borrower. With invoice financing, entrepreneurs are supported with the capital to meet running costs, pay wages, and invest in upcoming business costs.
Invoice financing, unlike the line of credit, is a secured business model, that uses invoices raised as collateral. Hence, the rate of interest and repayment cycles offered tend to vary.
The eligibility criteria for these sme loans often depend on the revenue generated in the past, credit history of the applicant and the company, and also the number of invoices raised.
Eligibility criteria include:
- Your business must have a minimum operational history of over 12 months.
- Your Business Net Profit is atleast 5 lakh rupees
- Your minimum Annual Business turnover must be over ₹20 lakhs
- Should be a Supplier/Distributor of a large corporate
- Have a valid invoice of work/purchase order worth of atleast 1lakh.
Features Includes:
- The applicant is eligible to receive up to 90% of invoice raised as the loan amount
- The tenure for repayment ranges between 30 to 120 days.
- Capital for lending ranges between INR 1Lakh to 1 Crore.
- Repayment amount to be recovered from the partner
CASH ADVANCE:
Merchant cash advance is one of the quickest ways of debt raising from banks and other lending institutions. With a 72-hour disbursal cycle and no prepayment fee, it offers applicant, quick and reliable finance to meet their expansion requirements or purchase equipment, or improve the infrastructure of the organisation. A merchant cash advance is the best SME loan for your business if a majority of your business is generated through card payments through POS machines. With merchant cash advance, as an entrepreneur, you are facilitated with an option to raise debt over your monthly transactions via credit and debit cards. In this form of lending, the lender charges a portion of the total monthly transactions the borrower makes through card swipes.
Merchant cash advances allow you to take up to 200% over your average monthly transactions.
Features of SME Cash Advance:
- The repayment tenure is generally flexible and upto 12 months.
- The lending credit ranges between INR 1 Lakh to 1 Crore, depending on the nature of the business.
Your business is eligible to receive an SME loan of this nature if these criteria are met:
- Your business must have a minimum operational history of 1 year
- Minimum Annual business turnover of ₹12,00,000
- Minimum card acceptance vintage of 6 months
- Minimum monthly card volume of ₹50,000
- Net Profit of at least 3 lakh INR
WHAT ARE DOCUMENTS REQUIRED TO PROCESS AN SME LOAN?
With FlexiLoans, you experience a hassle-free, fully online banking experience. The documentation part of it is fully online too.
The documents required before applying for a SME loan are:
- Bank statements for the last 12 months
- Updated KYC details of the organization and the applicant
- All financial documents asked for by the lending organization
- Shop establishment certificate
- Invoice against which finance is to be raised
- Partner Information
WHY APPLY FOR SME LOANS WITH FLEXILOANS?
FlexiLoans is a technology-based financial institution that strives to cater a swift, hassle-free, financial experience by combining technical expertise with finance. Our experts understand the requirement and cater a solution that best fits your needs.
With FlexiLoans, from applying for a loan to realizing its disbursal, all the steps involved are fully online.
With a flexible repayment option ranging from 12 months to 36 months and no pre-payment charges, it offers a best in class banking experience.
Reach out to our experts for a quick consultation on your business needs or for financial guidance.
HOW TO APPLY FOR A SME LOAN
If you are a business owner or a company, please do click here to apply for SME Loan